Four centuries after London's first Elizabethan playhouse closed, the Rose Theatre is to bloom again. Not as a theatre but with its foundations, rubble ramparts, floorboards, Tudorbethan-style pillars, posts and balustrades to the minstrels' galleries rising up in a ghostly white light from the real-life site of an archaeological dig.

This isn't floodlighting but fluorescent light, used to create the 3D illusion of the Rose rising up out of the basement of the Seventies office block in Southwark it now inhabits. This will-o'- the-wisp Elizabethan theatre, created by set designer Bill Dudley, has a 20-minute sound and light show playing on glass screens in front of the foundations.

Try as they might, archaeologists have a tough job showing us that what they do is exciting. Patient trowel work uncovering ancient architecture ends up looking like a slag heap. The Rose theatre may be the first - and possibly last - Elizabethan playhouse buried in the swampy banks of the Thames, but today it looks like the moonscape the Clangers inhabited, a lumpy pudding-mix under a foot of water to keep the alluvial soil moist, lest centuries-old timber drains brought to the surface should just crumble like dust.

After centuries buried under clay and peat, the Rose was discovered in 1989 on the site of a proposed carpark. Actors protested in the jaws of JCB diggers to save the theatre from being cemented, but Siefert's building went up in 13 storeys over it, with a carefully constructed basement to protect the Rose without digging load-bearing piles into its foundations. The offending office block was completed in 1989, towards the end of the Eighties property boom, and stood empty for four years, but now its tenants are the Health and Safety Commission.

The Rose needs funds to stabilise the marshy soil and preserve the timber parts. Visitors to the light- show resurrection will be charged pounds 3 a head, towards a goal of pounds 5m in the next two years. The Rose is hoping to attract some of the visitors from the other Elizabethan theatre rebuilt nearby, the Globe. The restoration work involves removing the concrete membrane that covers the foundations and the water, and using a spray-wax system to preserve the timber. The remains have not all been excavated yet because a sliver of the playhouse circle (about one third of the total area) lies under the London City Engineers depot. Boffins are hoping that Southwark Bridge excavations in the early 19th century didn't damage that bit.

Titus Andronicus and Henry VI played in this theatre. All Marlowe's first nights were held under a roof supported by just two posts across the stage while the audience swayed in the open air. Three thousand gathered regularly around the little stage, so small that Edward Alleyn closed it in 1606 - just seven years after it had opened.

We know from Shakespeare in Love that the Rose was as pretty as a picture in wattle and daub. Dame Judi Dench liked it so much that she bought the stage sets from Shepperton studios, even though they're just cardboard cut-outs with exteriors like billboards. She hopes to build them into an acting school in Islington on the site of the old Collins Music Hall.

The original Rose had "attiring rooms" for actors backstage, and three- tiered galleries on either side of the open stage. "Not as fol-de-roled as the Inigo Jones-look that Shepperton gave the theatre front," says Clare Graham, theatre project manager in charge of getting the Rose running as a tourist attraction. The version of the Rose created for the film would never have fitted on the real-life site. Besides, the foundations of an historic site are the equivalent of a Grade I-listed building, so you can't mock up a film- set replica or build anything substantial around it. They couldn't have bought the film set for use as an adjunct to the Globe theatre; the structure is too tall for the undercroft. Besides, the mechanics of turning a stage set for films into a building are more complex. They need lavatories, disabled access, entrances, shops and restaurants, dressing rooms.

To bring this hybrid Rose to life, the Trust turned to the grand illusionist, set designer Bill Dudley. He likes the challenge of giving unprepossessing spaces an emotional charge.

When Dudley staged a play on the First World War in a derelict dockyard in Glasgow, the audience were strapped into fairground seats while actors slithered in and out of trenches cut into the floor. Scenes were shifted while dry ice rolled out of these trenches like gas and gun fire. In the same space, Dudley staged The Ship with Glaswegian actors actually launching a ship into the Clyde. There wasn't a dry eye in the place.

So Bill Dudley wasn't fazed by having to stage a show inside a theatre that isn't exactly a theatre but more of a ruin covered by a preservation order in the basement of an office block. To his eyes, the flooding is a "magic pond". Dim daylight filtered through tall, arrow-slit windows makes it "like a cathedral, or a castle". He thought of Excalibur arising from the lake and created the illusion of the Rose arising from its ruins. To him, the basement space is "dramatic, the biggest and deepest structural interior in Europe".

The best magic never lets on how it's done, but a preview of the show reveals its secrets. Laid all over the ring of the Rose theatre foundations are electro-luminescent pads like electric blankets made of 14 different layers of plastic, all with their own underwater leads plugged into a control box, insulated so that when Chris Smith switches on the show on 14 April "it doesn't go bang," in the words of Dorian Kelly, sparks- magician from Illuminati, the company working on the lights. The fluorescent lights give off an eerie white glow, shining through acetate film. You won't see this film in the murky waters, but inked with magic marker, it shows stones and floorboards, ramparts and timber drains, traced exactly to a millimetre from the foundations below. Light shining through these crudely inked but precise shapes makes 3D structures loom out of the water.

"Not the real thing like the Globe next door," Bill Dudley says, "but near as dammit. The whole point of the exhibition is that it is underwater. My brief was to give the public some idea of what lies beneath it. You'll never see the real Rose, since it lies under listed buildings that are protected. But archaeology makes the building very accessible. On site I get quite emotional. I'm in contact with the history of London and it's a real labour of love."

Two big glass screens slanted above the galleries beam out a sound-and- light show on the history of the Rose and its excavations against the eerily lit backdrop of the foundations. When Dudley began researching the site, he discovered there had been 67 brothels there, one every couple of yards. Snatches of bawdy songs ring out, and film clips from Shakespeare in Love since what he calls the "miraculous reconstruction of the Rose" informed filmmakers on the architecture of Elizabethan playhouses.

"In the 1590s, Southwark was the biggest entry into Europe. There are parallels in the 1990s with people who are attracted to London in search of work."

Architects often borrow theatrical devices, but they still have to make the shelter substantial. Bill Dudley's show is in direct response to the site. He couldn't build on the Grade I-listed monument even if he tried. This exhibition serves to remind people of its existence.